India should be developed as a major bullion hub on the lines of Dubai as the country, the largest consumer of gold in the world, has the potential for strong re-exports, experts feel.
India has to some extent liberalised direct imports of gold, thus reducing the need for indirect imports.
Similar changes have recently taken place in Egypt, the second largest re-export destination for gold from Dubai.
It is, therefore, important and the appropriate time to bring about further changes in the Indian bullion markets, mainly Mumbai, the experts said. Dubai has traditionally been called the 'City of Gold', serving markets such as India and Egypt.
In 1997, at the peak of its gold trade, Dubai imported 660 tonnes of gold and re-exported around 600 tonnes, with a market value in the region of $6.5 billion.
Of late, however, Dubai's status as a major bullion center has eroded. Dubai's gold imports have fallen to about 257 tonnes in 2000, and its annual re-exports to probably just over 200 tonnes, with a market value of about $2.3 billion.
According to the National Commodities & Derivatives Exchange Ltd, establishing free trade zones, rationalisation of sales tax and other duties and reduction in customs duty would help in developing India as an important bullion hub.
The FTZs should be set up with the involvement of the Reserve Bank of India, other banks, refiners, fabricators and importers and exporters of bullion.
The FTZs would be characterised by the absence of any octroi, sales tax or import duty on the bullion traded in the zone. The absence of these levies would help increase trade in bullion.
The sales tax and octroi in Mumbai are high compared to other centres like Ahmedabad, Delhi and Jaipur.
This has significantly reduced the volume of bullion trade in Mumbai, with traders preferring the other destinations.
Throughout the world, gold is treated as a currency and not as a commodity, hence no sales tax or octroi is charged on it. A similar treatment for gold would help develop the bullion market here, the exchange said.
It is essential, therefore, to either eliminate or reduce the levels of sales tax and octroi to develop the Mumbai bullion market. More importantly, the sales tax should be made uniform across various bullion centers, the experts said.
The measure of the development of an active gold market is how closely the local prices reflect the international prices. For this, it is important for India to reduce the customs duty on gold.
The current level of customs duty of Rs 250 per 10 grams is high by international standards and the duty should be cut in a phased manner, the experts said.
More from rediff